The government has included hotels across India with project cost in excess of Rs.200 crore and convention centres with project cost of more than Rs.300 crore in the infrastructure lending list. This is equivalent to granting infrastructure status to the hospitality industry.

In a notification dated 7 October, the department of economic affairs expanded its ‘harmonised master list of infrastructure sub-sectors’ to include such hotels and convention centres. The hotels can be of any star rating and located anywhere in the country. The project cost excludes the cost of land and lease charges but includes interest during construction.

This is in addition to including three-star or higher category hotels outside cities but in places with populations of more than one million people in the Reserve Bank of India’s infrastructure lending list late last year. The hotel industry has been demanding infrastructure status for some years now to bail out hotels from the liquidity crunch due to the prolonged economic slowdown.

The infrastructure status will allow large capital-intensive hotel projects to avail loans with longer repayment tenures of 15 years at lower rates of interest and higher debt-to-equity ratio of up to 4:1. It will also enable hoteliers to access more funds through relatively low-cost external commercial borrowings and become eligible for financial assistance including takeout financing from specialized agencies like IDFC Ltd, India Infrastructure Finance Co. Ltd and the newly set up Infrastructure Debt Funds (IDF). Hoteliers welcomed the decision.

“To accomplish the ministry of tourism’s vision of doubling our foreign tourist arrivals (FTAs) and domestic tourist visits (DTVs) in the 12th Plan Period (2012-17), the hotel industry is required to augment our existing room inventory by another 1,80,000 classified guest rooms. Factoring the contemporary trends in development costs, this would entail further capital investment of a staggering Rs.1,25,000 crore,” Vivek Nair, past president and honorary secretary, Federation of Hotel and Restaurant Associations of India, a lobby group, said in an email.

“In the present high interest-rate environment wherein the industry is also witnessing a temporary demand-supply mismatch on account of the economic slowdown, we had been persistently articulating that proactive policy action was imperative to insulate the requisite long-term investment in the sector from cyclical macroeconomic volatility,” he added. According to industry estimates, the hospitality sector contributed Rs.94,487 crore in terms of foreign exchange last year and generates about 8% of the employment opportunities in the country.

“The capital-intensive hospitality industry, which has been battling an adverse environment owing to government policies including high taxes, has today found solid ground,” Jyotsna Suri, chairman and managing director, Bharat Hotels Ltd, which runs a chain of luxury hotels under the Lalit Suri Hospitality Group. “Now hotel chains can get a benefit of 70-80 basis points in interest rates while availing loans,” she added. A basis point is one-hundredth of a percentage point.